27 November 2015

Getting Forecasts Right Requires Admitting You’re Wrong

By

Tim Harford

Economic forecasting is fraught with uncertainty, and even the most seasoned financial professional is only correct a fraction of the time. Yet despite this uncertainty, forecasters rarely revise their predictions when new evidence presents itself.

Tim Harford, behavioral economist and columnist at the Financial Times, has suggested that this lack of revision stems from an economic God complex, and he discussed how analysts can make more accurate forecasts at this year’s European Investment Conference. Read More

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26 November 2015

Closing the Gender Gap Can “Grow the Cake for All”

By

Halla Tomasdottir

The CFA Institute European Investment Conference is a focused, interactive conference for Europe’s leading investment professionals. The 2017 CFA Institute European Investment Conference will bring portfolio managers, analysts, chief investment officers, and CEOs together in Berlin on 16–17 November.

“In the world of investment, we have probably heard a lot more about the growth opportunity of China and India than we have heard about the fact that the world’s largest opportunity is actually here already — it’s the incredible growth in females’ income and our ability to tap into that,” said Halla Tomasdottir, founder and CEO of Sisters Capital.

Speaking at the 2015 European Investment Conference, Tomasdottir emphasized that women’s growing participation in the labor market and higher rates of education have increased “the power of the purse” (i.e., women are making more consumption decisions). Consequently, she said, it simply is not smart business to not understand their needs.

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A Brexit Is a Lose–Lose Proposition

By

Michala Marcussen, CFA, with conference chair James Mackintosh

The biggest threat to the European Union (EU) is a potential Brexit — the withdrawal of the United Kingdom from the EU — both in terms of its possible impact and the uncertainty surrounding its likelihood, says Michala Marcussen, CFA, global head of economics at Societe Generale Corporate and Investment Banking.

Marcussen, the keynote speaker at this year’s European Investment Conference, predicted that a referendum on EU membership will be held in the third quarter of 2016, and she estimated the probability of Brexit at 45% — too great a likelihood for investors to ignore.

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20 November 2015

Social Media at the 2015 European Investment Conference

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The content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.
Photo credit: ©iStockphoto.com/VLADGRIN

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17 November 2015

Overcoming the Economic God Complex

By
Forecast Early and Often

People snicker about the forecasting skills of financial prognosticators, yet they keep requesting forecasts. Why does the investing public insist on expecting an economist to accurately predict the future? Tim Harford, behavioral economist and columnist at the Financial Times, asserts that no experts ever successfully warn us about any social science problem. This is not specifically a problem about economics and the economic crisis, notes Harford: it’s about being humble in a very complex world.

The world is far too complex to understand, says Harford, although it is tempting to believe that “armed with a few pieces of data, we do.” Enter the God Complex, where one has an infallible belief that one is right – no matter how complex a problem. In the financial world, few go far enough to receive a clinical diagnosis of Narcissistic Personality Disorder, but economists and investment advisers are prone to believe that, to a better than average degree, they can forecast the future. This becomes a problem when they hold on to their predictions in the face of conflicting evidence. Read More

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22 October 2015

Navigating An Experimental Economic Environment

By

Stacked periodicals
Our generation of investors must navigate an anemic global economy that was inconceivable only a few years ago, unmoved by zero interest rates and bursts of experimental monetary policy. Entrepreneurial drive or “animal spirits,” which hitherto ignited capitalism, seem eerily absent whilst (perhaps not unrelatedly) global wealth and income is stealthily concentrated in an ever narrower elite.

Floundering in the center of this novel and experimental environment is Europe. Economist Nouriel Roubini, speaking earlier this year at the CFA Institute Middle East Investment Conference, suggested that the eurozone “is in trouble — one shock away from outright full deflation and another recession. The European Central Bank (ECB) has finally come to the point of conducting sovereign quantitative easing (QE).” Roubini believes this has three implications for investors: “First, the value of the euro is going to keep falling toward parity with the US dollar. Second, European equities are going to continue to rally once the noise about Greece is resolved. Third, bond yields in the eurozone are going to fall”. Meanwhile, sitting serenely outside the troubled Eurozone and atop a surge in London house prices, the UK economic engine seems to be running well.
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23 September 2015

4 Lessons from Iceland for Surviving a Financial Crisis

By

Diversity Bringing Balance

The CFA Institute European Investment Conference is a focused, interactive conference for Europe’s leading investment professionals. The 2017 CFA Institute European Investment Conference will bring portfolio managers, analysts, chief investment officers, and CEOs together in Berlin on 16–17 November.

Financial journalist Michael Lewis attributed Iceland’s 2008 financial collapse to “one of the single greatest acts of madness in financial history.” In his coverage for Vanity Fair, he wrote that “an entire nation without immediate experience or even distant memory of high finance had gazed upon the example of Wall Street and said, ‘We can do that.’”

Unfortunately, the country could not. Iceland’s banks ran afoul of shocks in the wholesale funding market, and foreign debt difficulties created problems with soaring interest rates, inflation, and unemployment. Read More

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25 August 2015

Where Should Analysts Look for Unique Insights? Beyond Company Management

By

Looking Beyond
The best equity research reports rely on three important components, according to James J. Valentine, CFA. In his article “Do You Know the Key Ingredient Found in the Best Stock Calls?,” Valentine explains how these components combine to provide a unique insight: they pertain to a critical factor, are out of consensus, and are more accurate than consensus. When constructing insightful analysis, Valentine deeply discourages reliance on company management for information — it’s likely not unique, and cannot be objective.

Valentine is the principal and founder of training organization AnalystSolutions, and he consistently provides valuable advice for analysts in his work. His book, Best Practices for Equity Research Analysts: Essentials for Buy-Side and Sell-Side Analysts, synthesizes his extensive experience and draws upon the expertise of other industry professionals to inform analysts on topics such as improving stock-picking techniques, making ethical decisions, and effective message communication.
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13 August 2015

Economic Activism: Europe’s Struggles with Monetary and Fiscal Policy

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Man and woman looking at signpostEconomics, and by consequence, investing, can always be contextualized and discussed relative to fiscal and monetary policy. This is true whether investment professionals find themselves in the aftermath of the Great Recession, in the next Nifty Fifty era, or if it is just another day of market vagaries. Not surprisingly, monetary and fiscal policies will be part of many discussions at the 2015 European Investment Conference.

From 1991 and the fall of the former Soviet Union to the global financial crisis, monetary and fiscal policy was standardized. Central banks intervened occasionally and indirectly in markets, while fiscal policy, even if divisive, tended to be coordinated within nations. Arguments between competing political parties about economic policies were usually nuanced and not entrenched. Read More

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20 July 2015

The Irrational Mind and Saving for the Future — How can Advisers Help?

By

rationalmind
Behavioral Economics Professor Dan Ariely thinks that financial advisers are asking the wrong questions. “How much of your current salary will you need in retirement?” and “What is your risk attitude on a five, seven, or ten-point scale?” are questions that fail to provide meaningful answers, Ariely argues, while “How do you want to live in retirement?” and “What activities do you want to engage in?” can help clients identify and prepare for their future financial needs. “People are apt to want to do more than watch TV or take walks on the beach,” Ariely wrote in a blog post, “when retirement endows their days with another eight or more hours of free time.” Read More

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